Shoppers may soon find tax collected on more Internet purchases

Amazon has struck deals with some individual states but would prefer streamlined process

January 15, 2012|By Gregory Karp, Chicago Tribune reporter

The free ride for shoppers on the Internet superhighway may finally be ending.

The toll will be sales tax.

As every savvy online shopper knows, tax isn't collected during online checkout if the seller does not have a store, headquarters or other physical presence in the buyer's home state.

With an implied wink and nod, skipping the sales tax has become a built-in discount for online shoppers since the days when Amazon.com was only an online bookseller and kindle was a verb.

An Illinois resident who annually buys $3,000 worth of otherwise taxable goods online could have been avoiding about $190 a year in state sales tax.

Now politicians at the state and federal levels, spurred by merchant groups who say online sellers get an unfair price advantage over brick-and-mortar retailers, aim to close the online sales-tax loophole and funnel cash to starving state budget coffers.

Such a move would recapture $153 million annually in Illinois alone, according to the governor's office. That's money that would be transferred out of Illinois residents' pockets and into the state Revenue Department. Critics say the change won't affect every purchase here because 18 of the top 20 online retailers are stores like Apple, Sears, J.C. Penney and Best Buy. They have presences in Illinois and already collect sales tax on every purchase made by Illinois residents. The two exceptions among the top 20 are Amazon and NewEgg, according to according to NetChoice, an advocacy group for online commerce.

Levi Stewart, 43, of St. Charles, is a big Internet shopper. He spends about $500 a month at Amazon.com for purchases ranging from tuna to shoes, he said. "I've seen this tax coming for a long time," Stewart said. "It was just a question of when in my mind."

Stewart said he doesn't shop at Amazon because of a sales-tax discount, however. He likes the prices, selection and convenience. "In the grand scheme of things, the tax savings is just a little perk for me," he said. "Even when it goes away, I'll still be using Amazon for almost everything."

Last week, Amazon.com struck a deal with Indiana to start collecting sales tax from Hoosier online shoppers by 2014. In September, Amazon came to a similar agreement with California.

These deals with individual states, struck to stall states' aggressive efforts to collect taxes from Amazon's sales, might end up being interim measures. They could be replaced by federal legislation — bills are pending in the House and Senate — that in recent months has gained momentum and support, unlike previous attempts.

Merchants are stopping short of declaring victory on the long-running online sales-tax issue. "I don't think it's won until Congress takes final action," said Rob Karr, senior vice president at the Illinois Retail Merchants Association. "Certainly, we like the environment now more than we did two or three years ago. But until it's finalized, we're going to keep pushing."

Political pressure and rapid Internet sales growth of 15 percent a year compared with maybe 3 percent for brick-and-mortar retailers are bringing the issue to a head now, Karr said.

Illinois has been among the players in the online tax dispute. It enacted a law last year that essentially changed the definition of whether an online seller had a presence in Illinois. The effect was to require collection of sales tax from more online purchases. And Illinois Sen. Dick Durbin has co-sponsored one of the federal bills to implement online sales tax nationwide.

"I think we have finally come together with the right approach," Durbin said in an interview, adding that the bill has bipartisan sponsorship and the blessing of Amazon. An Amazon spokesman has said that nationwide online sales tax could become law this year or early next.

"I think it's the right thing to do," Durbin said. "I don't think any state ever dreamed there would come a day when such a large volume of sales in their state would be spared paying the same sales tax just because of the use of the Internet.

"The timing is right. … I think we're in better shape now than we have been in a long time."

Sales tax was always supposed to be paid to the 45 states that impose one, but the burden hasn't been on retailers to collect it unless they have a physical presence in the buyer's state. Instead, shoppers are supposed to somehow track and tally their online purchases all year, report them on their state income tax forms and pay a use tax equivalent to the state sales tax. It is rarely done. In Illinois, just 4.6 percent of taxpayers included any online sales tax on their state income tax forms in 2010, according to the state Department of Revenue.

Stewart, the big Amazon shopper, said he does not pay taxes on his purchases. "It's never crossed my mind or the minds of anyone I know," he said. "It just doesn't happen in the real world."